***”significant, because the trickle down effects on the economy from that business tend to remain within the domestic economy and grow the domestic economy even more.”
Other than it was taught as a “multiplication effect” (At least as taught to us years ago), not a trickle down which is usually used in conjunction with Reaganomics, we are in complete agreement. That’s semantics-
It’s not only Lenovo’s, it’s also Cisco routers/switches/access point etc etc etc. The consumer in China consumes a lot and most of that is spent on essentials like food, water, shelter……….. The component of their economy that is industrial and technologically based is heavily export dependent! A lot of the capital development is even financed through foreign investments.
***“ It also means that a lot of money that people think we are pumping into China’s economy is really being pumped into the economies of the countries that supply them with the components they assemble.”
It all goes back to why Freidman is correct in stating that trade deficits are more or less meaningless. Another topic the media like to zoom in on because it has a perceived negative interpretation by the layperson, and they can baffle you with big numbers and charts and graphs spanning some arbitrary time period (Usually a span chosen to show the greatest variance) which in the end means nothing.
*** “ China makes money on high volumes with relatively low profit margins”
True.
But the bottom line remains that the argument in this article is false. China is very dependent on exports, at least for now, and even there we agree that China is trying hard to change this.
I've spoken to vendors when we were looking for a new contract manufacturer to build circuit boards for our company's products.
They told me that most large volume, commodity type production was getting sent to China, and that after things got set up and running well, they were seeing good results in terms of reasonably few manufacturing errors.
Our quantities were too small and since a lot of our products are used in the defense industry, export regulations made having our boards produced in China impractical if not impossible. However, it was interesting to hear how much business they saw moving there.
There didn't seem to be any shortage of work for domestic contract manufacturers either. Our biggest problem was finding a manufacturer that was willing to do short product runs and prototypes. Most didn't want to bother with us, probably in part because our products tend to be very complex and have to be manufactured to to withstand operating in rough environments.
I would have thought that there would be more companies wanting to take on low volume, high margin work to avoid competing with cheap foreign labor, but it seemed like the opposite was true.
But the bottom line remains that the argument in this article is false. China is very dependent on exports, at least for now, and even there we agree that China is trying hard to change this.
I don't think the point of the article was that China isn't dependent on exports, it was more an argument about the degree of dependence. Since we are currently pretty dependent on cheap imports from China keeping inflation down, I kind of wish that the numbers showed that they were more dependent on us.
I'm also not sure that I agree that China is trying to reduce their dependence on exports. I think what they are mainly trying to do is reduce their dependence on importing components to produce those exports. If they increase domestic production of the electronic components, the net effect would be that a greater percentage of their economy would be dependent on exports, not a lesser percentage.